Markaz Research Reveals the Dominance of GCC Sovereign Wealth Funds


Kuwait Financial Centre (“Markaz”) in its recent research titled “The Golden Portfolio” has analyzed the role of Sovereign Wealth Funds (SWF’s) based in the region in terms of their investment in local stock market. According to the study conducted by M. R. Raghu, Head of Research and Sarah Al Khaled, Analyst, there are 36 Sovereign Wealth Funds (SWF) holding 131 GCC listed companies among themselves accounting for 27% of GCC market capitalization valued at USD 300 b. Apart from the big and most quoted names like Abu Dhabi Investment Authority (ADIA) or Kuwait Investment Authority (KIA), SWF’s also include a variety of government agencies that manage money either directly or indirectly. The categories may include pension funds, ministries, fully owned companies, etc. In other words, anything that is 100% owned can be classified as a SWF. Table : Summary No of SWF's    No of companies held    Market Universe    Amount held in local market    Share    Local Market Capitalization    Market Penetration A    B    C    D    E    F D/F Saudi Arabia    5    27    101    166,713 57%    462,195 36% UAE    7    27    102    61,002 21%    241,374 25% Qatar    6    9    40    28,744 10%    134,249 21% Kuwait    5    33    180    25,054 9%    207,949 12% Oman    9    21    128    5,998 2% 26,209 23% Bahrain    4    14    43    5,045 2%    27,855 18% 36    131    594    292,557 100%    1,099,831 27% Source: Markaz Research, Figures represent data as of March 17,2008 While collectively their holdings reach to about 131 companies, the top 25 companies account for 90% of the total. The authors choose to call this as the “Golden Portfolio” as they represent long-term strategic holding by an institutional investor category that is the most dominant in the region (Government) among all other institutional investors. The Golden portfolio houses the “who’s who” of GCC stock market. Saudi Arabia leads the pack with 8 companies followed by UAE with 7 companies. The constituent companies are mostly large caps and index heavy weights. The performance of the Golden Portfolio very closely mimics that of the general index due to this fact albeit with a very low tracking error. Saudi Arabia: The 5 SWF’s in Saudi Arabia hold stakes in 27 companies accounting for 36% of market capitalization valued at a staggering $300 billion. Government of Saudi Arabia is clearly the leader among Saudi SWF’s with a mammoth share of nearly 80%. Sabic and STC constitute the bulk of direct holdings of Government of Saudi Arabia. However, from a reach point of view GOSI has a reach in 14 listed Saudi stocks accounting for 7% of the total. While the holdings are spread much better than Government of Saudi Arabia, Samba and STC still account for 40% of total GOSI holdings. While Public Investment Fund holds shares in 9 companies, Samba accounts for 66% of its total. UAE: The 7 SWF’s in UAE hold stakes in 27 UAE listed stocks aggregating to USD 61 billion. Ministry of Finance and Industry emerges to be the top SWF in UAE thanks to its 60% holding in Etisalat. This is closely followed by Investment Corporate of Dubai that holds stakes in 8 companies. Bulk of its holdings is in Emirates NBD where it holds a 56% stake followed by a 32% stake in Emaar Properties. While Abu Dhabi Investment Authority (ADIA), one of the largest SWF in the world may have insignificant direct exposure to local stocks it has substantial holdings through Abu Dhabi Investment Council (ADIC) that is 100% owned by ADIA. ADIC holds stakes in 9 UAE listed stocks represented to a significant extent by its 73% holding of National Bank of Abu Dhabi and 65% holding of Abu Dhabi Commercial Bank. Other SWF’s like Mubadala Development co or General Pension and Social Security Authority have insignificant local holdings. Qatar: The 5 SWF’s in Qatar reach 9 listed companies valued at a total investment value of USD 29 billion (Table 7) and accounts for 21% of total market capitalization. Qatar Petroleum emerges to be the top SWF through its 70% holding of Industries Qatar valued at $16 billion. This single investment alone accounts for over 55% of total investments by SWF’s. Qatar Investment Authority follows with a second spot with investment value of $10 billion across 3 companies. Its 50% stake in Qatar National Bank accounts for 62% of its total investments. The Pension Authority has the highest reach in terms of number of companies invested (5). The major investment for the Pension Authority is Qatar Telecom accounting for 62% of all its investments in listed Qatari stocks. Kuwait: The hold of SWF’s in Kuwait appears the least as reflected by 12% grip in the stock market. The total investments by SWF’s amount to USD 25 billion mainly represented by Kuwait Investment Authority that has a 65% share among all. While KIA has invested in 8 listed Kuwait companies, its investment in Zain and Kuwait Finance House account for nearly 80% of its total investments. PIFSS ranks as the SWF with the highest reach as evidenced by its investment in 21 listed Kuwait companies valued at a total investment value of USD 3.5 billion. Its 15% stake in Agility (erstwhile PWC) counts as its largest investment followed by its 10% stake in Alahli Bank of Kuwait. Oman: There are 9 SWF’s in Oman with investment value of $6 billion, accounting for 23% of total market capitalization. Oman government is the largest SWF in Oman with a share of 44% and investment value of $2.6 billion, all in one company i.e., OmanTel. In terms of reach, Civil Service Employees Pension Fund has invested in 10 Omani listed stocks. However, its share in the pie is 9%. Bank Muscat enjoys the patronage of 6 out of 9 SWF’s together holding 33% of its share capital. Bahrain: The 4 SWF’s in Bahrain have cumulatively invested with a market value of $5 billion accounting for 18% of total market cap. The share of SWF in the local market capitalization is relatively less compared to other markets like Saudi Arabia or UAE. This list includes one SWF outside the shore i.e., PIFSS of Kuwait. The largest SWF of Bahrain is Bahrain Mumtalakat Holding Co that has a 45% market share. This was closely followed by the Pension Fund Commission that has invested in 10 Bahraini listed companies. PIIFS of Kuwait has a 20.5% holding in Ahli United Bank. Batelco, the telecom major of Bahrain, is held by 3 SWF’s to the tune of 55% making it the largest company in value terms. National Bank of Bahrain is held to the extent of 49% by Bahrain Mumtalakat Holding Company valued at $1.7 billion. SWF’s are a subject of great discussion of late given their forays into global financial markets and global asset classes. However, their hold in the local stock market has not been of much discussion due to lack of information. Their holdings are mostly strategic in nature and would stay long-term given the returns these companies have generated in the past. They are also in strategic sectors like telecom, petrochemicals, banking, etc. Governments have always played the role of dominant investors in this region and they will continue to do so. The Golden Portfolio would be dynamic in nature as new players jostle out old ones for a position among the top. It would be interesting as well as rewarding to keep an eye on such a portfolio composition. ### About Markaz Kuwait Financial Centre 'Markaz', with total assets under management of over KD1.3 billion as of December 31, 2007, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.